One of the biggest problems small businesses face is cash flow instability. As an experienced accounting firm in Geelong, we thought we would offer some insights with some tips and tricks for better cash flow management.

Create a Cash Flow Forecast

Projecting your expected cash inflows and outflows can help you plan better and avoid cash flow shortages. This is usually done on a monthly basis and requires you to gather data from things like sales projections, accounts receivable ageing reports, accounts payable, share deals, and historical cash flow statements.

When planning your cash flow forecast, you need to look at both short-term and long-term factors could impact your cash flow, whether they are seasonal fluctuations, market trends, or economic conditions.

Techniques such as trend analysis, regression analysis, and scenario planning can all help you account for uncertainties and estimate a reasonably accurate cash flow in a variety of scenarios. The key is to update your cash flow forecast regularly to ensure it is as accurate and relevant as possible.

Manage Receivables and Payables

Effectively managing your receivables and payables is easier said than done, but it is a crucial part of making sure your cash flow is optimised.

Accelerating your receivables, such as offering incentives for early payment, setting clear payment terms and conditions, or being active and following up on overdue invoices, can help achieve this. You could also implement automated invoicing and payment reminders to streamline the collection process and reduce payment delays.

Negotiating for more favourable payment terms could help you preserve cash. This might include extending your payment terms or negotiating discounts for early payments. You could also consider consolidating payments to preserve working capital.

Build a Cash Reserve

Many businesses fail to build a cash reserve emergency fund, which can save you a whole lot of trouble down the line by ensuring your business continues to operate when the going gets tough.

Decide on an appropriate cash reserve, and then put maximum effort into reaching that target as soon as possible. Keep things like operating expenses, revenue volatility, and your tolerance for risk in mind when deciding on an appropriate cash reserve target.

A portion of your cash flow should be allocated to gradually building your cash reserve over time, as it will help you ensure you remain liquid and capable of operating even under the worst of circumstances.

You could even consider investing your cash reserve in low-risk, high-liquidity assets such as money market funds to earn a modest return on your reserve. Your cash reserves should be reviewed and regularly updated to ensure they are adequate and in alignment with your business needs.

Optimise Inventory Management

Managing your inventory can play a key role in helping you optimise cash flow. This is because it minimises your carrying costs and maximises your inventory turnover. Conducting a thorough analysis of your inventory levels, the rates of turnover, and how much it costs to carry that inventory can help you spot ways you can improve.

You could try implementing just-in-time inventory practices to reduce storage costs or use inventory forecasting techniques and demand planning tools to accurately predict customer demand so you can optimise your inventory accordingly.

We provide expert accounting advice to small businesses. If you are looking for assistance in managing your cash flow and other bookkeeping or accounting demands, look no further than Infuse Advisors & Accountants—the accounting firm in Geelonghttps://infuseaccountants.com.au/ you can trust.